Summary
Liquidity risk management is a stress discipline. The regulatory ratios establish a floor; the operational framework must ensure the firm can identify, mitigate and fund stress before it becomes a resolution question.
Behavioural assumptions
LCR and internal stress metrics depend on behavioural assumptions about deposit stickiness, drawdowns and market access. Assumptions should be evidenced, backtested and challenged.
Early warning indicators
A defined EWI dashboard — deposit trends, wholesale spreads, collateral haircuts, operational proxies — with escalation thresholds is the bridge between normal operations and contingency response.
Contingency funding plan
The CFP defines the sequence of actions across escalating stress. It must be testable, and it must be tested. A CFP that has never been exercised is a document.
ILAAP
ILAAP integrates measurement, appetite, stress and CFP into a coherent narrative that supervisors can assess. Its usefulness internally depends on whether it is a management document or a compliance one.
Intraday liquidity
Intraday risk is often under-managed relative to overnight metrics. Real-time monitoring, throughput analysis and correspondent-bank dependencies deserve explicit attention.
Limitations
Liquidity risk cannot be eliminated; it can be understood, priced and contained. The purpose of the framework is to make the trade-offs visible.
Related expertise
Frequently asked questions
What should risk leaders know about behavioural assumptions?
LCR and internal stress metrics depend on behavioural assumptions about deposit stickiness, drawdowns and market access. Assumptions should be evidenced, backtested and challenged.
What should risk leaders know about early warning indicators?
A defined EWI dashboard — deposit trends, wholesale spreads, collateral haircuts, operational proxies — with escalation thresholds is the bridge between normal operations and contingency response.
What should risk leaders know about contingency funding plan?
The CFP defines the sequence of actions across escalating stress. It must be testable, and it must be tested. A CFP that has never been exercised is a document.
What should risk leaders know about iLAAP?
ILAAP integrates measurement, appetite, stress and CFP into a coherent narrative that supervisors can assess. Its usefulness internally depends on whether it is a management document or a compliance one.
What should risk leaders know about intraday liquidity?
Intraday risk is often under-managed relative to overnight metrics. Real-time monitoring, throughput analysis and correspondent-bank dependencies deserve explicit attention.